Identifying long-term precursors of financial market crashes using correlation patterns

The study of the critical dynamics in complex systems is always interesting yet challenging. Here, we choose financial market as an example of a complex system, and do a comparative analyses of two stock markets - the SP the probability of remaining in the same state is much higher than the transition to a different state. The transitions to other states mainly occur among the immediately adjacent states, with a few rare intermittent transitions to the remote states. The state adjacent to the critical state (market crash) may serve as an indicator or a "precursor" for the critical state and this novel method of identifying the long-term precursors may be very helpful for constructing the early warning system in financial markets, as well as in other complex systems.